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How to Choose Bitcoin Wallet?

A bitcoin wallet is a place that stores the digital virtual bitcoin cryptocurrency and validates the transactions when using Bitcoin. A wallet keeps the secret information known as a secret key or seed that is used to sign the transactions so that the bitcoin can be used for the purchase or exchange for another asset. The secret key is also used to validate the transactions, thus this prevents transactions from being altered by a third party.

How Does Bitcoin Wallet work?

A key pair comprising of public key and private key are used to send and receive bitcoins. To send bitcoins private key is used and to receive bitcoins public key is used. Private keys need to be kept secret and public keys can be shared with anyone. 

If the same public key is used every time bitcoin is received then anyone can track the whole payment history. Thus, treating keys as one-time use tokens increases users’ privacy significantly. 

How to Create a Bitcoin Wallet?

Below are the steps to create a bitcoin wallet:

  1. One can create a wallet by signing up in mobile apps, or web apps, for desktop wallets install the application.
  2. Once sign-up is complete in mobile apps or web apps you are provided with the public key and private key. The public key is the wallet address and the private key will indicate that you are the owner of this account.
  3. The seed phrase is provided for backup in case the wallet address is lost, so keep the seed phrase secret.

One can create as many wallets as one can, but the account will only be visible in the network when a transaction is performed.

Types of Wallet

Below are the different types of bitcoin wallets based on the functionality:

  1. Web wallets: Web wallets are hot wallets that are always connected to the internet and can be accessed through different browsers such as Google Chrome, Firefox, and Internet Explorer. For example, Coinbase, and Binance. 
  2. Desktop Wallet: Desktop wallets are installable software packs that are available for most desktop operating systems such as Mac, Windows, and Linux.  For example, Electrum, Exodus.
  3. Mobile wallet: Mobile wallets are the fourth most secure way to store your cryptocurrencies because they are always connected to the internet (hot wallets) and can be flawed by the development community itself. It is available on both IOS and Android. For example, Jaxx, and Breadwallet.
  4. Hardware wallet: These wallets are physical, electronic devices that use a random number generator to generate public keys. The keys are stored in the device itself which is not connected to the internet. Hardware devices are built specifically for handling private keys and public addresses. For example, Ledger, Keepkey, BitLox.
  5. Physical/Paper wallet: It is a piece of paper in which address and private keys are physically printed. Needless to say, as it keeps your private keys offline, it is another secure way of storing your cryptos but not all cryptocurrencies offer paper wallets.  For example, the Bitcoin paper wallet generator.

How to Choose Bitcoin Wallet?

There are a number of factors that can be considered to choose a bitcoin wallet. Some of them are:

Advantages of Bitcoin Wallet 

  1. Decentralized: It means there is no central authority to control the network.
  2. Transparency: Since every transaction is stored on the blockchain, in case of any discrepancy one can check the record.
  3. International use: One can do Inter-Country transactions very easily because there are no banks involved in this.
  4. Low operation cost: When money is transferred from one bank account to another, a considerable amount of money is charged as fees to complete the transaction. If you transfer bitcoin, it will charge very little amount as transaction fees.
  5. Instant transfer: Bitcoins are transferred instantly which makes the transaction fast and saves time, irrespective of the geographical location of the sender and receiver.

Disadvantages of Bitcoin Wallet 

  1. Universal Acceptance: Bitcoins are not accepted worldwide, in some countries, it’s not legal tender.
  2. Price fluctuation: The price of bitcoins fluctuates very much, as it is influenced by investor and user sentiments, government regulations, supply, and demand, etc.
  3. Keeping the seed phrase secret: If you don’t keep the phrase secure, the security of the account can be compromised
  4. Reversing the payment: If you mistakenly pay someone by using bitcoins, then there is no way to get a refund of the amount paid. All you can do is to ask the person for a refund and if your request is turned down, then just forget about the money.
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